This week’s figures suggested that the labour market is in rude health. Admittedly, some of the timelier measures of employment growth have started to weaken. And with the labour market now exceptionally tight, some slowdown in employment growth looks likely as firms struggle to find suitable staff to fill positions.
But while we aren’t expecting the stellar performance of 2017 to be repeated in 2018, we doubt a sharp slowdown in employment growth is in store. After all, the various measures of hiring intentions have remained high by past standards. A revival in real pay appears to be underway too, which should offset any drag on consumer spending from softer employment growth. Overall, then, with the labour market very tight and pay growth showing signs of life, the MPC should be in a position to normalise monetary policy soon – we still expect the next rate hike to come in August.
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